Shale well fee hike needed, DEP says

Reg­u­la­tory pro­gram faces fund­ing woes

HAR­RIS­BURG — Large fines paid by drilling com­pa­nies kept Penn­syl­va­nia’s oil and gas reg­u­la­tory pro­gram from bankruptcy last year, as pro­gram costs sur­pass dwin­dling rev­enue from well per­mits by nearly $700,000 a month, the pro­gram’s di­rec­tor said Wed­nes­day.

Scott Perry, the deputy sec­re­tary for the Depart­ment of En­vi­ron­men­tal Pro­tec­tion’s of­fice of oil and gas man­age­ment, laid out what he called the dire con­di­tion of the pro­gram’s fund­ing sit­u­a­tion to jus­tify a DEP pro­posal to more than dou­ble the cost of a per­mit to drill a shale gas well from $5,000 to $12,500.

The pro­gram, whose staff size was re­duced from 226 to 190 to cut costs, re­views per­mit ap­pli­ca­tions, in­spects well sites and de­vel­ops poli­cies to im­prove over­sight of the in­dus­try. Its pri­mary fund­ing source is a one­time per­mit fee paid by com­pa­nies for each well they ap­ply to drill.

Nearly all of those fees are paid by shale gas com­pa­nies, but Mr. Perry said they fund the broad scope of the of­fice’s oper­a­tions, in­clud­ing its over­sight of tra­di­tional oil and gas wells, gas stor­age wells, aban­doned wells and earth­mov­ing ac­tiv­i­ties for well sites.

The agency does not pro­pose to raise per­mit fees for tra­di­tional wells, which num­ber only about 100 a year and have had the same fee rate since 2009.

Shale gas well per­mit fees were last raised in 2014 with the ex­pec­ta­tion that com­pa­nies would ap­ply for 2,600 shale well per­mits a year. This year, they are on track to ap­ply for just 1,500 per­mits.

With the staff re­duc­tions, Mr. Perry told an ad­vi­sory board Wed­nes­day, “I think it is safe to say that the of­fice of oil and gas man­age­ment is cur­rently not achiev­ing any of its goals,” but the fee in­crease is needed just to main­tain its cur­rent level of per­for­mance.

Ab­sent a fee in­crease, the

only way to bal­ance the pro­gram’s rev­enue and ex­penses would be to fur­lough 70 staff mem­bers, he said.

“I could not pick a less ideal way of fund­ing the of­fice of oil and gas man­age­ment than this ex­tremely lim­ited and com­pletely un­pre­dictable per­mit,” he said. But, he added later, “it is frankly the only op­tion” that the of­fice has.

The pro­gram does not re­ceive an ap­pro­pri­a­tion from the state’s gen­eral bud­get fund. It re­ceives $6 mil­lion from the an­nual im­pact fees paid by shale gas com­pa­nies. Last fis­cal year, it re­ceived nearly $9.6 mil­lion from fines.

In­dus­try groups have balked at the size of the pro­posed fee hike. The Mar­cel­lus Shale Coali­tion has said it “ap­pears ex­ces­sive and may be pro­hib­i­tive for some op­er­a­tors.”

In­deed, Mr. Perry said, it is likely the higher fee will lead to a drop in the to­tal num­ber of per­mit ap­pli­ca­tions as com­pa­nies get more par­tic­u­lar about which projects they pro­pose.

Now, he said, the shale in­dus­try drills only about 40 per­cent of the well per­mits it re­ceives in Penn­syl­va­nia.

DEP is plan­ning to present a re­port on the state of the pro­gram’s fund­ing to the En­vi­ron­men­tal Qual­ity Board, a rule-mak­ing body, in March with a for­mal pre­sen­ta­tion of the reg­u­la­tory pro­posal in May. Usu­ally, it takes a year and a half to fi­nal­ize a pro­posed rule, so a higher fee would not likely take ef­fect un­til the sum­mer of 2019.